fire damage to business

How to Recoup Lost Business Due to Damage

When it comes to business insurance for your commercial property it’s important not only to have it in place but to understand how it works when you need it. When most business owners think of commercial insurance they think of the coverage for damage to their physical location or to the contents of their building such as office supplies, office furnishings, and inventory. For example, if your store were to burn down due to a fire, you would receive a payout from your insurance to replace your damaged property. 

While this is important, most commercial property insurance policies also provide coverage that not only covers the cost to repair or replace that has been damaged but also compensates for the loss of business during the period of time you need to recover from the physical damage caused to your store. If it takes a six months to rebuild your store and you suffer $1,000,00 in lost sales, and taking into consideration saved expenses throughout the building process, your insurance company will likely reimburse you this lost amount. This is commonly known as business interruption losses. 

The scope and terms of what defines “business interruption” coverage will vary from policy to policy so it’s important you understand what is and isn’t covered for your own business. Here are some things to keep in mind when dealing with commercial property claims:

Lost Property and Lost Earnings Will Be Addressed Separately

Business interruption insurance provides the business owner with funds to make up the difference between your business’ normal income and the income you get during and immediately after a shutdown. 

If your business suffers a property loss – whether from a fire, storm, water,, theft or vandalism – you may have to close for a period time or move to a new location, temporarily.  Your property insurance policy will cover the cost to repair or replace your building, equipment, and inventory. 

Some policies include coverage for loss of business, however if yours doesn’t you will need a separate business interruption insurance policy to cover potential lost income.

Do You Claim Loss Profit or Lost Revenue?

The amount you can recover in insurance policy depends on the language of your policy. This is why it’s very important to understand what you are paying for, and not wait until a problem arises to learn the details of your policy. Often there are a series of requirements you must meet before benefits kick in for loss of income coverage. 

In some cases, it is difficult to measure how much your business should have earned, so the insurer will often look at your income for a period of time prior to the loss and project a monthly average using that figure. You will likely need ot provide documentation to prove both income and expenses.

Determining the Period of Restoration

The period of restoration is the length of time that your policy will pay benefits after a loss. Typically this period will begin on the first day your business was shut down, however some policies require a waiting period which could be anything from 24 hours to a few days. 

The ending period depends on your policy. Sometimes the period of restoration is satisfied when the property should be expected to be repaired or rebuilt. In other cases, it is the date the business is resumed as a new location. How this period is calculated is defined based on the facts of each loss and business and your individual policy.

Many policies will also specify a maximum limit on this period of restoration which is usually 1-2 years after the loss occurred. 

Making an Insurance Claim 

How you will make a claim will depend on factors like your insurance company, the type of claim you’re making, and the laws in your state. However, here are some things to know to make the process a bit easier:

  • Read your policy carefully and thoroughly. If you do not understand how the insurer will calculate the income loss, ask for an explanation.
  • Start gathering documentation immediately following the damage. 
  • Don’t throw anything away, even if it’s damaged, since you may need it to support your claim.
  • Reach out to your accountant if there is significant financial loss.
  • Keep accurate records of sales and operations expenses that continue after you have sustained a loss. 
  • Take photographs of the damage prior to making repairs or removing damaged items.
  • Take reasonable steps to minimize your loss. For example, consider relocating your business to a temporary location.
  • Keep a record of all your communications with your insurance company. Get as much in writing as possible.
  • Consider hiring an independent insurance adjuster to deal with your insurance company, advise you on how best to prove your claim, and to maximize your claim.

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